Housing Rebound Helping to Ease Canada’s Recession

Canada’s home-building market is starting to recover from steep losses in the late 1980s, and economists say the rise in housing starts could boost jobs and lead the country out of recession.

Sales of new homes in Toronto, Canada’s largest and most expensive housing market, soared in the first six months of 1991, already matching total sales for 1990, the Toronto Home Builders Assn. said Monday.

“We’re going to see sustained activity in building starts through the summer into the fall and that means job creation,” said Paul Keenan, the association’s president.

Residential real estate, which started a long skid in 1987, has emerged as one of Canada’s strongest economic sectors as the country’s yearlong recession shows signs of ending, economists said.

“We’re seeing really surprising growth, not only in the number but also in mortgage approvals,” economist Mark Chandler of the Royal Bank of Canada said. “It helps improve the economy directly.”

Canadian retailers, battered by low consumer confidence, are expected to benefit from spending on house-related goods, while an upswing in the construction sector could pull down Canada’s unemployment rate, now at 10.5%, Chandler said.

The cost of financing a new home in Canada has fallen 30% from last year, and analysts say a slide in interest rates in February and March and bottoming housing prices during the recession have kick-started house sales across the country, signaling a broad-based housing recovery.

“There are a lot of bargains out there, and the combination of lower-priced houses and lower interest rates makes it a very affordable time right now,” said Rita Daniel, director of market analysis at Canada’s Mortgage and Housing Corp.

Canada’s resale housing market has rebounded in 22 of the country’s 25 housing markets, the Canadian Real Estate Assn. reported in June statistics released Monday.

Resale housing activity rose 46% in June compared with last year, the association said.

A massive oil-drilling project in Newfoundland, to be completed in late 1996, has increased housing activity in St. John’s, where sales had been weak for several years, while Vancouver, Edmonton and Calgary have also begun recovery.

Almost every real estate company he’s talked to has experienced a pickup in sales, said real estate analyst Frank Mayer of BBN James Capel Inc.

Real estate giants Royal LePage Ltd. and Bramalea Ltd. are expected to show jumps in revenue in the third and fourth quarters because of Toronto’s increased housing activity.

Commercial and industrial real estate, however, remain weak, and Mayer said non-residential real-estate might not follow gains in residential sales until late 1992.

Some economists say the current strength in Canada’s housing market might be hard to maintain as interest rates start to level off.

“Housing construction will probably help pull the economy out of recession once again,” economist Paul Ferley of the Bank of Montreal said. “But we don’t expect the strength to continue, although the direction will hold.”